Stressed About Money? 6 Thinking Traps to Avoid

Jane Bianchi

February 7, 2014

Whether you’re pulling your hair out because you can’t seem to save enough money for your emergency fund or you’re having a hard time dealing with your significant other’s spending habits, various types of money anxiety can be triggered by what one expert labels as “thinking traps.”

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Below, Shatté shares six common thinking traps when it comes to money and your mind. See if you recognize any of them and read on to figure out how to retrain your brain (it’s not as hard as you think!).

Thinking Trap #1: Personalizing or Externalizing

What It Is: When a financial problem arises, you either think that it’s completely due to something that you did (personalizing), or you blame everyone around you (externalizing) instead of taking responsibility yourself.

For example, if you were to lose out on a promotion at work, you might be tempted to attribute that to your own weaknesses or solely to the unique talents of the person who got the gig. According to Shatté, these are extreme ways to think about the event. Not to sound like Goldilocks, but this all-or-nothing approach isn’t usually accurate—and you don't always have a window into why the decision went the way it did, so don't form conclusions without accurate data.

How to Stop: If you tend to personalize, says Shatté, it's also easy to "catastrophize" the situation. You know what that looks like: "I always blow opportunities." "I'll never get ahead."

However, one rejection doesn't mean you're never going to be successful. First, ask yourself if you're blowing this into a bigger deal than this is, and if you're doing some extreme self-blaming, ask yourself what you'd tell a friend who had this happen to him.

Admit to yourself that you can't know that it was "all your fault"—or even a direct result of something you've done. “What did others do to contribute to this?” is another question Shatté recommends. Maybe there was a purely political reason someone else got the promotion instead.

Picture this: It’s 3:00 a.m. You wake up because there have been rumors that your company is downsizing.

If you tend to externalize, on the other hand, use the opposite strategy. Ask yourself: “What might I have done to contribute to this?” It can be hard info to look at, so writing it down may be helpful. Also try approaching the question from the perspective of someone else (say, your boss), and see what comes up. For best results, leave your list alone for a couple of days and come back to it in a couple of days when you can be more objective.

Thinking Trap #2: Magnifying and Minimizing

What It Is: “There’s a human tendency to magnify the bad and minimize the good. We are drawn to the negative,” says Shatté. Let’s say that you’re trying to save $500 per month for two years, and that the money will go toward a down payment on a future home. After three months, you find yourself focusing on the $10,500 that’s left to go and feeling overwhelmed. You might sigh and think: “I’ll never get there.”

How to Stop: Instead of focusing on the daunting, big-picture goal ahead, think about the $1,500 that you’ve already put away. The result? Rather than feel worried about the future, you’ll feel proud of the progress you’ve made. In fact, the best way to make progress is simply to get started with a good habit, and you already have.

But keep in mind that we're actually hard-wired to give up just when we're about to meet with success: In fact, a recent University of Pennsylvania study showed that often, the longer you pursue a goal, the farther away it seems, which can lead you to get sidetracked or to give up—even if you’re close to reaching the finish line.

Thinking Trap #3: Overgeneralizing

What It Is: You see a stranger’s Ferrari in a parking lot and think, “He is a lot richer than I am. He probably makes hundreds of thousands of dollars and has a beautiful home and a perfect family. Why is his life so great and mine is so blah?”

If that sounds like one of your thought patterns, pay close attention. “We like to leap to conclusions because they’re easy and they help us save brainpower. But you can’t look at one aspect of a situation and then make a general rule about it,” says Shatté.

How to Stop: Let’s think more about that guy with the Ferrari and how little we know about him. For instance, he might be in $20,000 worth of credit card debt and have $30,000 left to pay in student loans. Perhaps he has no emergency fund and no retirement savings. Maybe he doesn’t have a job, lives in a shack and stole that car. The point is: When you don’t have a lot of information or context, your perspective becomes skewed and may cause you to fret unnecessarily.

Thinking Trap #4: Being Pessimistic

What It Is: Picture this: It’s 3:00 a.m. You wake up because there have been rumors that your company is downsizing. You decide that you’re going to get fired. With no income, you won’t be able to keep up your mortgage payments, so you’ll lose your house. Then your spouse will be so angry that she will divorce you and take your kids. You’ll have a tough time finding a new job in this economy, so you’ll end up penniless on a street corner, wearing tattered clothes, eating scraps of food from garbage cans and begging for money.

This behavior is often called “catastrophic thinking” and it’s unhealthy. “The brain can be our best friend or our worst enemy. Sometimes it can quickly sweep us downstream to a horrible place,” says Shatté.

How to Stop: To break this harmful chain of thoughts, it’s important to analyze what’s truly possible and what isn’t. If your company downsizes, could you lose your job and, consequently, your home? Yes, it’s possible. So thinking this might motivate you in a positive way to set up an emergency fund that’s filled with six months of living expenses as a safety net, just in case.

But that’s where the thought chain should end. Is getting laid off likely to lead to getting a divorce, losing your kids and starving on the street? C’mon. “Usually this is where people start laughing, and then the spell is broken,” says Shatté. “This will help you to stop wasting mental energy worrying about things that are extremely unlikely to happen.” And remember, everything seems worse at 3:00 a.m., so rethink your options in the morning!

Thinking Trap #5: Assuming That Someone Can Read Your Mind

What It Is: Maybe your live-in boyfriend likes to spend a lot of your shared income on new video games or fishing equipment and it makes you anxious, since the two of you don't have a lot of disposable income floating around after you pay rent.

You may assume that he knows that this habit concerns you, so you keep quiet about it for days, weeks, months or even years—until a huge argument erupts. By that point, resentment has built up, so you’re beyond frustrated. Meanwhile, he’s confused and surprised by the fight. What started as a tiny irritant has now become a major relationship issue.

How to Stop: “If you have a problem with a partner’s spending habit, start a conversation right away to communicate your concern effectively and politely,” says Shatté.

Try saying: “It seems that you spend more than I do. When that happens, I get anxious. I see our money disappearing. I’d like us to collaborate on these decisions, particularly on big-ticket items. If you can do that, I’ll feel a lot less anxious.” That way, your emotions are out in the open immediately, and it gives your partner an opportunity to change before things get out of hand.

Thinking Trap #6: Reasoning With Your Emotions

What It Is: This occurs when you allow your heart—and not your head—to guide your thinking. For instance, you might think: “I’m feeling anxious, so there must be another recession coming on. All my mutual funds are going to take a hit; I can feel it. I should probably take out all of my money right now.” If you react like this, you could get financially burned, because there is no logic to back up your decision.

How to Stop: When it comes to putting money into the stock market or taking money out of it, talk to a financial adviser about the state of the economy first. For example, if the housing bubble appears ready to burst again and the foreclosure rate is climbing fast, those are concrete numbers that you can examine with your adviser. The idea is to use facts and figures to form an opinion, rather than your emotions.

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